Indian aviation is facing a very tough time right now with high costs and low yields. This problem is going to get much worse when a massive fee hike at Delhi’s Indira Gandhi International Airport kicks in.
Indira Gandhi International is operated by Delhi International Airport Limited (DIAL), a consortium of GMR Group, Airports Authority of India, Germany’s Fraport and Malaysia Airports Holdings Bhd. This group has done a great job improving the infrastructure at Indira Gandhi International. A 5-star, world-class terminal has been built for international and full service carriers. A third runway has been built. These improvements allow Air India (and other airlines of India) to truly run an efficient and effective hub in Delhi. In this difficult time for Indian aviation, these infrastructure improvements have been very beneficial to Indian carriers. These benefits will soon turn to burdens when Indira Gandhi International becomes the world’s most expensive airport next month.
Currently, airport charges at Delhi are roughly aligned with other major world airports. Converted to purchasing power parity rate, Delhi’s costs are roughly 50% higher than major hubs in the world. Considering that, one would expect DIAL to work at cutting costs to bring its market rates in line.
Instead of a rational decision like cost cutting, DIAL proposed a 740% increase in fees that would make it the most expensive airport in the world. The Airport Economic Regulatory Authority (AERA) rejected this proposal, and instead has allowed a 346% increase, with the increase occurring in 2 stages. Even with this 346% increase, Delhi will have the world’s most expensive airport. This will add a $300 million cost to Indian carriers at a time when they are already facing a lot of trouble. Because this increase will force fares up, there is expected to be a demand drop of over 5%, which will damage the viability of many flights and reduce domestic and international connectivity to the airport.
Order 03/2012-13 of the AERA allows the 346% increase in charges and further increases in aeronautical charges, parking, fuel, and more. DIAL, which was looking for a larger increase, put out a statement:
Delhi International Airport (P) Limited (DIAL) welcomes the revision in aeronautical charges promulgated by AERA. However, considering that the charges were stagnant for the last decade (since 2001), the revision of charges is much below our expectations. Tariff calculations show that the approximate increase in ticket pricing on account of passenger fee per pax, for the year 2012-13, works out to INR 290 on an average for domestic and INR 580 on an average for international. Delhi airport will compare favourably to other major global airports where passenger fees range between $ 25(INR 1300) to $ 30 (INR 1560) on an average, thus making a very soft impact on the passengers.
The current aero tariffs levied in Delhi are amongst the lowest in the world. Considering additional investments done as per terms of the concession, including capacity building and new features factored in; the tariff hike effective 15th May 2012 is less than half of requested increase and therefore inadequate.
This statement is full of inaccuracies. Far from being one of the cheapest airlines in the world, Delhi is the most expensive. When you take into account UDF for departures (up to Rs 1086), UDF for arrivals (up to Rs 881.10), ADF (up to Rs 1300), and Passenger Service Fee (Rs 130), the total cost of Indira Gandhi International to International round-trip passengers is a whopping Rs 3977.10 ($75.69). This is over 10% of the average international roundtrip fare.
Compared to DIAL’s own figure of $25-$30 as a reasonable fee, it can clearly be seen that Delhi’s fees are very high.
It is clear that the continuing rate increases will hurt airlines, passengers, and the local economy. It shows the government’s lack of interest in developing the Indian aviation industry into the real driver of economic activity that it can be.